Sunday, December 18, 2005

Is the Democratic Party the Political Equivalent of GM?

Just as G.M. has protected its outdated products at the expense of its larger mission, so, too, have Democrats become more attached to their programs than to the principles that made them vibrant in the first place. So what if Social Security and Medicaid functioned best in a world where most workers had company pensions and health insurance and spent their entire careers with one employer? The mere suggestion that these programs might be updated for a new, more consumer-driven economy sends Democratic leaders into fits of apoplexy.

If by updating Social Security, you mean diverting payroll taxes to private accounts, then I want nothing of it. It doesn't make economic sense to subject our one guaranteed retirement benefit to market forces. Modern portfolio theory demonstrates that having a low risk component of one's investment potfolio makes it easier to take on higher risk (and higher return) investments. This guaranteed benefit is even more important as defined benefit plans are being replaced by defined contribution plans such as 401(k) programs. What bothers me, even more than attempts to resurrect BushCo's failed Social Security privatization, is the notion that Democrats are economically backward compared to Republicans, as Bai suggests:

Republicans have embraced the future of the global marketplace, but to them the future looks a lot like "Road Warrior."

In other words, Republicans are more forward thinking because they are willing to reward a few winners at the expense of everyone else. How forward looking is that? It sound more like a rerun of the late 19th Century than a prescription for prosperity in the 21st Century.Now I like to think of myself as fairly sophisticated and forward-looking when it comes to economics. I spent eight years in city government working to attract business to Wilmington and find ways to balance the city's budget. Cities across the country prospered during the 1990s, thanks to economic policies that enabled all income segments to increase their earnings. The U.S. prospered in the 1990s thanks in no small measure to the sound economic policies of Bill Clinton and his economic team, notably Robert Rubin. A few short years ago, our president could confidently speak of budget surpluses as far as the eye can see. Robert Rubin demonstrated that these surpluses reduced the cost of capital for the public and private sector. But "Rubinomics" became a pejorative when BushCo took over. The result is that we squandered these surpluses and replaced them with deficits as deep as we can dig.